Cash Basis S Corp owing PR taxes

[thomtax]

Picked up a client that recently terminated office manager who handled all the books, payroll deposits, etc. Because of a cash crunch, she did not make any federal payroll tax deposits. The owner was unaware of thie until recently - thus the termination.

Extension was filed properly.

My first thought was to simply go back and back out all the pr tax accruals from expense. Unfortunately, this will result in a profit, rather than a loss for the corp. However, now a couple of questions have come to mind that have me wondering. This is a cash basis return.

1. If I back out the pr expense acruals, how should I handle the deducts from their payroll checks which were not remitted to the IRS?

2. Is there some special rule that precludes handling the payroll taxes this way?

All thoughts are welcomed and thanks in advance.

LT

[Roland Slugg]

Certain liabilities are properly reflected as such on the books of cash-basis taxpayers. One of these is, indeed, payroll taxes withheld from employees but not yet remitted to the IRS or to the state. So the unremitted withholdings should remain on the books of the corporation. You will note that this does not give rise to a deductible expense.

Another liability that's properly recordable on the books of a cash-basis taxpayer is credit card debt. A deductible expense charged to a credit card is deductible in the year the expense is paid by charging it on the CC, even if the card balance is NOT paid off before the tax year ends.

[thomtax]

Thanks Roland